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Monday, November 19, 2012

PROPERTY TAXES RAISING in Costa Rica

Even with this "raise" (though read the WHOLE article as the value on where you start paying the higher tax has gone up ALSO!), Costa Rica is STILL OUTRAGEOUSLY CHEAP on Property Taxes (what gets me are all the people that bitch about the taxes going up - yet are the first to also bitch about the roads, bridges, schools, crime, jails and other things that WE'RE used to coming from those taxes?? Where in the hell do you think the $$ is supposed to come from???

The unusual way that Costa Ricans appraise property is coming to haunt
expats who own dwellings here.

At a time when some properties are selling at give-away prices, the
finance ministry has set new assessment values based on the rising
price of construction materials.

That means a higher value that might put more homes into the luxury
category where the owners have to pay an extra annual tax and opens the
way for municipalities to adopt these values for local taxes.

The Dirección General de Tributación, the tax agency of
the Ministerio de Hacienda, released the new value without any fanfare.
The decree ended up in an
obscure part of the La Gaceta official newspaper Thursday.

The edict continues the government's reliance on the appraisal system
called replacement cost new less depreciation. This is in wide use in
Costa Rica even though many appraisal texts call this unreliable except
in special cases.

In this system the appraiser measures the area of a structure and tries
to determine based on current prices how much the cost would be to
replicate it. Once the estimated cost new is determined, the appraiser
applies a deduction for actual depreciation, that is the wear and tear,
and the statutory depreciation, that is the amount the government will
allow.

This system of appraisal appeals to the Costa Rican sense of order and
allows them to ignore what may be the actual market value of a property.

The true value of a property is what someone will pay to buy it, and
the more reliable market data approach compares a property to recent
sales of similar structures that actually have taken place.

Under the government system, a 400-square-meter concrete home in a San
José slum would have the same value as one sitting on a hill
overlooking the Pacific Ocean in a community like Dominical or
Tamarindo. The government tries to compensate for this by issuing
estimated values for square meters of land in different parts of the
country, but the adjustment seldom is sufficient to offset the
replacement cost approach.

The Tributación edict also includes hotels, whose struggling
owners will have to pay the same luxury tax as homeowners. But hotels
are a business, and appraisers generally try to evaluate an ongoing
commercial enterprise by its income and profit. The income approach to
value would clearly report that the McDonald's fast food operation on
the downtown pedestrian mall is worth much more than the value of its
bricks and mortar. And that approach also would say that a southern
Costa Rica hotel that is standing empty and unused is worth far less
than the cost of constructing it.

The decree appears to increase the square-meter value of dwellings as
much as 40 percent. That

Do-it-yourself
guide
to figuring tax base

By the A.M. Costa Rica staff

Want to do your own appraisal?

The depiction of the method in the Tributación manual of
assessment looks more complex than it really is.

This is the way to determine depreciation. D is depreciation and it is
determined by adding x, the actual age, over estimated useful life (n)
to
the square of the actual age and the square of the estimated useful
life. Tributación lists the useful life ranging from 40 years
for a concrete prefabricated structure to 100 years for adobe.

Then the whole thing is divided by 2.

According to this formula a 24-year-old adobe structure would have 15
percent depreciation due to age. Windsor Castle would have no value
under this formula.

Finding the actual value (VA) is even more interesting. The
depreciation found previously is multiplied by the replacement cost
new (Vn) and then everything is multiplied by a fudge factor E,
the
estimated condition of the property.

means some homeowners whose properties were not subject to the luxury
tax in the past are now.

Most expats will need help with the tax assessment. The declaration of
value, which the homeowner must make, is good for three years. Since
the tax is three-years-old, those who have been paying the tax based on
2009 figures must report a new value based on the new data issued by
Tributación.

The declaration can be submitted via the tax agency's electronic
system. Or it can be handed in on Form D-179. In any case, the
math to determine the value of a dwelling or a hotel or a condo is
challenging.

The good news for some homeowners this year is that the threshold for
paying the so-called luxury tax has increased from 100 million to 111
million colons or about $224,470. In part this is due to the increased
value of the colon against the U.S. dollar. That includes the estimated
value of the lot. Condo owners also have to include their proportional
share of the common areas.

Editor Brodell has
conducted a number of property appraisals in his long career. He has
been admitted as an expert witness on the value of newspaper properties
in a U.S. state court.